Marrs Company manufactures candy. The company buys chocolate used in the candy in 1-kilogram boxes that cost $20 each. The company uses 15,000 of the boxes on average per year, and usage occurs evenly throughout the year. The maximum usage of boxes per year is 21,000.

The average cost to carry a 1kilogram box in inventory per year is $3, and the cost to place an order is $25. The purchase lead time is 4 days. The number of working days in a year is 300 days.

Required:

1. Determine the economic order quantity for the 1kilogram boxes of chocolate.

(4 marks)

2. If the lead time for an order is normally four (4) working days, determine the reorder point for the chocolate assuming average use per day.

(3 marks)

3. Calculate a. the safety stock Marrs should carry and b. the new reorder point

(5 marks)

4. Discuss how Just-in-Time Purchasing and Just in Time Production can address the reasons for holding inventory as listed in your lecture notes.

(13 marks)